The present invention relates to systems and methods for calculating an enhanced volume-weighted average price, and more particularly to trading systems that allow traders to place orders on average price contracts based on trades, bids, and offers.
Electronically based trading systems have gained widespread popularity over the years. Such trading systems are frequently used for trading items ranging from financial instruments (such as stocks, bonds, currency, futures, contracts, etc.) to used household goods (such as old records, baseball cards, antiques, etc.). In many of these trading systems, bid/offer-hit/lift processes are used to negotiate a sale of a given item. In connection with such processes, bids and/or offers for items are entered into a trading system and a hit or lift is submitted in response to a bid or offer, respectively, to agree to a sale, or a purchase.
Historically, traders use benchmarks to evaluate their trades. Determining the volume-weighted average price (hereinafter the “VWAP”) is one of the most common trade evaluation benchmarks. Traders, brokers, institutional investors, and managers determine the quality of their trades by calculating the VWAP and comparing the VWAP to the prices of which their trades were executed. For example, if a trader purchased a stock today at a price lower than the current cumulative VWAP, the trader bought the stock at a good price—i.e., better than the average buyer of the stock. On the other hand, if the trader bought the stock at a price higher than the VWAP, then the trader overpaid for the stock relative to other buyers of the day. Traders often monitor the VWAP to, for example, predict when short term buying and selling opportunities may arise.
There are markets that provide trading data such that the VWAP may be calculated. One embodiment of an interactive trading system that allows traders to trade on the VWAP is described in co-pending, commonly-assigned U.S. patent application Ser. No. 10/678,582, filed Oct. 2, 2003, and U.S. Provisional Application No. 60/415,843, filed Oct. 2, 2002, which are hereby incorporated by reference herein in their entireties. Trading on the VWAP may provide an opportunity for buyers and sellers to buy or sell items at a price that is the VWAP price or at a price that closely tracks the VWAP price.
However, the conventional VWAP may not be calculated for an illiquid market or a temporarily illiquid market which has little or no volume of trades. Illiquid markets and temporarily illiquid markets that have little or no volume of trades do not allow traders to buy and sell items without causing a significant and possibly disproportionate price change.
Therefore, it would be desirable to provide traders with an opportunity to evaluate instruments traded in illiquid markets or temporarily illiquid markets using an approach for calculating an enhanced VWAP price. It would also be desirable to provide an enhanced VWAP price, for an instrument, that may be used as a basis for trading derivatives of that instrument (i.e., the enhanced VWAP price may be used to mark a closing price for which derivative contracts may settle).